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Edited version of private advice

Authorisation Number: 1012680367133

Ruling

Subject: CGT - small business 15 year exemption

Questions

1. Will you be entitled to the small business 15 year exemption?

Answer:

Yes.

2. Will you be entitled to the small business 50% active asset reduction or retirement exemption?

Answer:

Not applicable.

This ruling applies for the following period:

Year ending 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You purchased a farm lot of X acres in February 199X.

The farm was purchased jointly by the partners. It has operated as a partnership since date of purchase.

Income and expenditure have been included in the partnership tax return every year since acquisition.

You have never used the land farm land for anything else other than a working farm.

The sale of the land will be in connection with your retirement.

Your annual turnover does not exceed $2 million.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-B,

Income Tax Assessment Act 1997 Subdivision 152-C,

Income Tax Assessment Act 1997 Section 152-15 and

Income Tax Assessment Act 1997 Section 152-35 .

Reasons for decision

Basic conditions

To qualify for the small business CGT concessions, you must satisfy several conditions that are common to all the concessions. These are called the basic conditions. Subdivision 152-C of the Income Tax Assessment Act 1997 (ITAA 1997) applies the small business 50% active asset reduction provided the basic conditions are satisfied.

A capital gain that you make may be reduced or disregarded under Division 152 of the ITAA 1997 if the following basic conditions are satisfied:

Active asset test

The active asset test is satisfied if:

A CGT asset is an active asset if it is owned by you and is used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or child, or an entity connected with you.

In your case, you satisfy the active asset test as you have owned the land for more than 15 years and the asset was an active asset for more than 7.5 years.

Therefore, you satisfy the basic conditions as the land is considered to be an active asset and you are a small business entity.

15 year exemption

Subdivision 152-B of the ITAA 1997 provides a small business 15 year exemption as part of the capital gains tax (CGT) small business relief provisions. If you qualify for the small business 15 year exemption, the capital gain is entirely disregarded and it is unnecessary to apply any other concessions.

If you are an individual, you can disregard any capital gain arising from a CGT event if all of the following conditions are satisfied:

In your case, you satisfy the basic conditions, you have owned the farming land for more than 15 years and you are both 55 years or older and the sale will happen in connection with your retirement. Therefore the 15 year exemption will apply to disregard the capital gain you will make on the sale of the farm land.

50% active asset reduction and retirement exemption

As you qualify for the small business 15 year exemption, you can entirely disregard the capital gain and do not need to apply any other concessions.


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